Euro bailout fund will be 800 billion euros

The 17 countries that use the euro are to build a 800 billion euro financial firewall against their debt crisis — although 300 billion euros of that have already been used for previous bailouts.

30.03.2012

(AP) The 17 countries that use the euro are to build a 800 billion euro financial firewall against their debt crisis — although 300 billion euros of that have already been used for previous bailouts — Austria's finance minister said Friday.

That gives the eurozone some 500 billion euros in fresh money to help debt-ridden countries.

Maria Fekter said the figure should send a convincing message to financial markets and the eurozone's international partners that the currency union can effectively contain its two-year-old debt crisis.

The eurozone is under pressure to build a strong defense against further financial problems among its members. Some 300 billion euros in financial help have already been used to bail out Greece, Ireland and Portugal. Many economists fear that without a sufficiently large financial safety net, big economies like Italy or Spain could also come under threat.

While the 800 billion euro ceiling is much higher than the 500 billion euro limit that had been agreed last year, it still falls short of the 1 trillion euros that international institutions like the International Monetary Fund and the Organization for Economic Cooperation and Development had suggested.

To ease the transition from the eurozone's interim bailout fund, the European Financial Stability Facility, to its new rescue vehicle, the European Stability Mechanism, some 240 billion euros left in the EFSF will remain available until mid-2013. The ESM is supposed to come into force in July.

Fekter said that allowing the two funds to run in parallel for one year will give the eurozone time to build up the ESM closer to its full 500 billion euro capacity. The ESM depends on a 80 billion euro capital base, which is backed bu by 620 billion euros in guarantees from its member governments, which it can then use on the financial markets to raise money. The capital base will be paid into the ESM in several installments until 2014.

However, Fekter stressed that the 240 billion euros that are still left in the EFSF could only be used as a last resort and if agreed by all the euro countries.